Tax-free reorganisation from a sole proprietorship or a business assessed as a partnership to a private limited company
Sole proprietorships and businesses assessed as partnerships may transfer their business to a newly established private limited company in return for a fee in the form of shares in the company. In cases where section 11-20 of the Tax Act and associated regulations are followed, this may take place without triggering taxation of the owner of the sole proprietorship or business assessed as a partnership.
Where can you find out if you have shares acquired through reorganisation?
The owner of a sole proprietorship/business assessed as a partnership has formed a new private limited company through reorganisation. The formation documents will indicate what has taken place.
How is the input value determined in such cases?
Values that have been transferred will appear on the balance sheet for the old enterprise at the time of the conversion and on the balance sheet for the private limited company at the time of establishment.
In the case of tax-free conversion from a sole proprietorship to a private limited company, the input value of the shares is defined as the fiscal net values that are transferred.
In the case of tax-free conversion from a business assessed as a partnership, the input value of the units will be continued as the input value of the shares.
Any payments made by the private limited company to the previous owners in connection with the conversion will be deducted from the input value.